Now Jen is on a mission to inspire and empower others through financial education so they too can enjoy the life they want to live. Jen shares her recipe for success, happiness and financial freedom via writing, blogging, speaking and coaching. As part of her commitment to community, Jen pledges her blogging profits as 0% microloans through Kiva.org to small businesses operated by working, impoverished women in developing countries.

Brian was tired of making other people wealthy. He no longer felt in control of his earnings as an employee. One day not too long ago, Brian Schwartz told his wife that he wanted to quit his 9 to 5 job and become his own boss.

Brian, the primary bread winner for his family, had never been an entrepreneur before. His astute wife put him to a test — she told him he could quit his job, after he interviewed 50 entrepreneurs.

The vast majority of small businesses fail. Why? And what does it take for an entrepreneur to succeed? Brian discovered the answers to these questions and more by asking those who have BTDT (been there, done that). Armed with a list of 13 pertinent questions, Brian met with over 50 entrepreneurs. I was one of them. Brian’s end result? An army of role models and mentors, a 245 page biographical encyclopedia, his wife’s blessings, and a new business that he is already turning into a franchise.

Brian’s book, 50 Interviews: Entrepreneurs, provides a short background about each business owner, then provides each entrepreneur’s answers — in their own words — to the following questions:

1. What was your initial start-up cost and source?
2. How long was it until you reached a positive cash flow?
3. Did you use a business plan?
4. What was the genesis of your business idea?
5. What is the vision of your company & the community you serve?
6. What is the passion that it fills for you personally?
7. Where do you see yourself and your company in ten years?
8. What were your biggest challenges? Looking back now, is there anything you wish you had done differently? What do you know now that you wish you’d known sooner?
9. What aspects of ownership are the most rewarding? Any unexpected rewards?
10. What do you attribute your success to? Luck, timing, someone who helped you?
11. How do you attract and retain the best employees? What is the most important attribute you look for?
12. Can you recommended any training or resources such as books, classes or websites? Do you recommend an MBA?
13. What slogan do you live by? What might your tombstone say?

The collective — yet very diverse — wisdom contained between the covers of the book 50 Interviews: Entrepreneurs is a godsend for any aspiring new business owner. If you are thinking about ditching the 9-5 grind for a business to call your own, spare yourself a few time-consuming and expensive hard knocks.

“When the economy tanked, I was forced to come out of retirement and work as a taxi driver.”

Photo: Visit Puppies Are Prozac for a dose of adorable, funny animal photos to chase the grumpies away.

Readers’ Questions Answered:

“You mentioned being better at the business side of things, but what did you do to help your husband make more money in the same, or less, time? ~Gregg

My husband is a third-generation construction tradesman. During his twenties, my husband worked as an employee for hourly wages, earning $20,000 to $35,000 annually. Meanwhile, his boss made several times as much revenue off of my husband’s efforts.

At age 30, my husband quit his job, affixed a rooftop rack onto an old Econoline van and became his own boss. After a year or two, his annual net income climbed to $60,000 before leveling off. He was on the right track, but for the hours he worked, he wasn’t earning what he could.

I had spent my twenties bootstrapping a couple of small businesses. I loved the creative process, the networking, the number crunching. After selling my businesses, I reviewed his business operations and found inefficiencies. My husband is an excellent tradesman with fantastic people skills; however, the math and minutiae of business management wasn’t his strong suit. Thankfully that’s where I shine so we joined forces and doubled the plumbing business’ annual net income to $120,000 the following year.

My husband is awesome with mechanical problem-solving and people; I have a talent for brainstorming ideas, analytical problem-solving, and implementing a sound plan. My husband and I both have different strengths that we bring to the table and together, we make a great team.

Statistically, the majority of millionaires are self-employed business owners. But it’s difficult for one entrepreneur to wear all the hats. Stick to what you’re best at doing and get help with the rest.

I’ve been outsourcing various tasks since I was 14 years old. My two siblings and I hated spending our weekends off from school cleaning the house, so the three of us pitched in equal shares from the money we earned from babysitting / paper-routes / dog-walking to hire a weekly housecleaner. Since we were better at our after-school jobs than we were at cleaning house, it made sense for us to do so.

I still use a housecleaner; I have a bookkeeper who comes to our home weekly to pay our bills, balance our checking accounts, file papers and send correspondence; and I just hired a personal assistant to help me tackle other tasks I’m not good at or don’t enjoy doing myself. When we’re really pressed for time (like after we returned home from China with our new daughter), we hire someone to stock our freezer with ready-to-cook meals. We hire subcontractors to do the work we aren’t good at — or don’t want to do — for our various businesses, too.

Outsourcing allows my husband and I to wear the hat that fits us best. As a result, we make more money AND have more free time to enjoy it!

You can read more of my tips (and others’) on outsourcing in a recent interview by US News and World Report.

—

“What are your favorite personal finance books?” ~Kelly

Here are my top 3 all-time favorite books:

Your Money or Your Life: 9 Steps to Transforming Your Relationship with Money and Achieving Financial Independence: Revised and Updated for the 21st Century

These titles are offered at Amazon but many of the titles can be found at your local library, too. Shop at Amazon.com from my store link and I’ll use my referral fees to help small businesses operated by working, impoverished women through Kiva.org.

I made contingency-free, cash offers on three different houses this week. I used recent sold comps (comparables) and price-to-rent ratios to calculate a reasonable price.

All three listing Realtors refused to present my offer to their sellers “because my bid wasn’t close enough to their asking price”.

Even though Realtors are legally required to present all offers, sometimes they don’t. If I was in the mood for it, I’d get stinky and insist upon it. But obviously, I know these Realtors won’t present my offer in a positive way to their clients. I’d be wasting my time. My contingency-free cash offer might be good for their seller, but the lower price would mean a lower commission to the Realtor…

The Realtors in our local market appear to be in denial about the state of our current economy and still have their heads in the sky about house valuation. Houses are getting contracts, then failing to close because they fall short when it comes time for loan appraisal.

During my housing search, I’d ask the listing Realtor how they arrived at their price. What comps (comparable sales) did they use? Most of the Realtors told me they used “active comps” (houses currently for sale) rather than “sold comps” to set their price!

…so what that those overpriced active comps have been languishing on the market month after month…

Their rational went something like this:

“It isn’t fair that appraisers include foreclosures and short-sales in the sold comps. They haven’t walked through those houses to compare interior finishes and condition with the house we are selling.”

Helloooo? Appraisers have NEVER walked through sold house comps to compare finishes and condition. Why should it be different now? Furthermore, appraisers can’t use active comps in their appraisal report.

Here are some of the other ridiculous things we were told:

“It’s not a house, it’s your home. Your daughter needs a home.”

Wherever you share love and laughter is home. Calling a house a “home” is a manipulation of your emotions for their profit. As I’ve said before, whether you pay rent to your landlord or pay interest to your mortgage company, you are buying shelter.

“You can’t paint your walls when you rent.”

Why not? We rent, we paint! If your landlord doesn’t care for the accent colors you’ve chosen, simply paint those walls back to white when you move out. Or use white walls as a backdrop for colorful furnishings.

“Real estate is local. Our local market won’t continue to suffer like the national market is because….. (fill in the blank with an odd assortment of rationales)”

Yes, local markets do vary. But lending is global and loans are harder to get. As long as credit and lending standards are tight and unemployment climbs, house prices will continue to drop everywhere.

Think about this one: What will happen if/when mortgage interest rates go up? I’ll tell you: Buyers will qualify for smaller loans. This will dampen house prices even further. We can pay cash for our next house so the higher the mortgage rate is, the lower the price, so all the better for us.

“Rents could go up, but your mortgage payment will always stay the same.”

My response to this one could easily fill a whole ‘nother post, but let me just say this for now: Rents are limited by the amount of money people earn — rather than how much they can borrow. Besides, mortgage expenses do increase over time: think maintenance and repairs, property taxes, insurance, HOA fees.

We are renewing our house lease. We will compare our cost of renting versus buying again next year. If our local Realtors are still playing these silly games, we’ll focus our search to properties listed for-sale-by-owner. Undoubtedly, house prices will have dropped even further by then, making it easier to win a favorable bid. In the meantime, we are happy to be home.

How do we learn about money? 80% of parents surveyed believe that schools provide classes for their children on money management and budgeting.

Sorry to break the bad news, Mom and Dad — your kiddos probably aren’t learning personal finance in school. Our school system requires English, math and science, but not a practical life-skills class like financial literacy. Ridiculous, isn’t it? I am all in favor of a well-rounded education, but what good is it if students learn where Shakespeare was born, but not what a tax-deferred retirement plan is? Or that n2 = x, but not that if you use Payday loans, you could pay an outrageous 1560% in annual interest!

Once we graduate from high school, the vast majority of us are responsible for earning an income, establishing and maintaining a respectable credit score, balancing our bank account, and saving for our future. We deal with money decisions almost daily — yet we are taught nothing about personal finance in school.

Braun Mincher (Braun Media, LLC) is currently producing a feature-length documentary film which exposes the financial illiteracy epidemic in order to bring awareness to this important topic. Braun’s goal is to show viewers why taking personal responsibility for their own financial wellbeing is so important. He wants to expose how little parents and the school system are doing to prepare the next generation for this growingly complex and relevant topic.

Braun conducted over 100 interviews with a wide variety of people: students, parents, educators, consumers, government officials, celebrities and personal finance experts. I was honored to be one of his interviewees. Here’s a short video teaser clip of my own money-life story and response to his million dollar question: “If financial literacy education is so important, then why are we not requiring schools to teach the subject, especially considering the current economic situation?”

Incidentally, I think it’s supposed to look like I’m sitting at my desk but the office I was interviewed in is not mine — naturally, my office is wallpapered with family photos, colorful Treasure Maps (aka vision boards) and cute puppies!

I’ve served as a volunteer Junior Achievement instructor and have taught students basic economic, personal finance and small business management concepts. The kids and their teacher loved the program. So did the parents — in fact, several of the student’s parents had their kids ask me pressing, personal finance questions for them. Yet the only administrators in my area interested in offering the course were those managing private schools. There is a pathetic 2.3% percent national market penetration at the high school level — and Junior Achievement classes are offered for free!

What about you: Did your parents pass along their financial literacy skills to you? Were you taught personal finance in school? Do you think schools should be required to teach money management skills? And finally, if the cure for financial illiteracy is so simple, then why aren’t we doing it?

I enjoy these posts – thanks for adding a voice of reason given the vast propensity to imagine the solution to the problem is doing more of the thing that caused the problem. We’ve collectively been telling ourselves the same stories so long it’s hard to ram home still that they *are* just stories; it’s good to keep hearing stuff like this to remind us. Like Anna, I’d love to read your thoughts on surviving the possibility of heightened inflation over the coming years – its impact on savings and so on. I know you suggested in a previous post you were concerned with this matter. Any thoughts?

Many fear hyperinflation, but after digging into the topic, I don’t think it’s as likely a scenario as prolonged deflation. From what I’ve been hearing, talk of hyperinflation might be driven more by politics than economics.

We are experiencing deflation right now. Using the 12-month change in the Consumer Price Index as the measure, inflation has been negative for three consecutive months. I think the more likely scenario will be like Japan: low inflation, low interest rates, and falling house prices for at least a couple more years.

… Japan, during what came to be known as its “lost decade.” A gigantic real-estate boom in the 1980’s came crashing down in 1991, bringing many other prices with it. Efforts to restart the economy foundered time and again, as businesses were not able to generate the kind of profits that would reignite prosperity’s cycle of hiring and spending. Not until 2005 was the deflationary era finally declared to be over. ~ New York Times

Because I’ve been sitting on a considerable sum of cash since I made my exit from the stock market during the first half of 2008, I’ve been mulling over this topic. I’m still trying to wrap my head around the implications of hyperinflation and prolonged deflation. I am not an economist, so please take my thoughts and opinions with a grain of salt. In other words, this post is not investment advice; just my best guess and opinion.

During deflation, debt is the enemy. Deflation is better for those with savings accounts because it increases the value of the money they have saved. Deflation rewards people like me (with cash) and retired seniors (who no longer need to worry about rising unemployment rates and would benefit from living cost containment).

During hyperinflation, the last place one wants to be is in cash. Inflation is better for those who owe money because it reduces the value of the money previously borrowed. Inflation is better for those in debt — including the US Government. So naturally, the Fed wants to create and maintain a moderate, steady rate of inflation.

Many people worry that the amount of money the Fed is spending to stimulate the economy will create hyperinflation. I think these fears are unfounded, at least for now. Last I heard, the Fed created about a trillion dollars, which sounds enormous, but is actually small when compared to the approximately $10 trillion drop in housing values and ~$10 trillion drop in stock market capitalization.

The Fed realizes they need to be careful — if they dilute the economy with too many dollars, they risk creating hyperinflation. Hyperinflation would be tough on everyone, including the Government, because foreigners would stop lending money to the US — unless they were sufficiently rewarded for taking on the heightened risk of investing in dollars.

Compensating foreign investors for taking on inflation risk means raising interest rates. But increasing interest rates would push homebuyers and homeowners with adjustable mortgages right over the edge. Mortgage rates have increased recently and if they keep increasing, we should see home prices fall further. Prices fall as interest rates rise, because a given monthly payment covers a smaller mortgage at a higher interest rate. Collapsing property values simply are not synonymous with hyperinflation.

For the short term, investment experts agree, deflation is more probable, with unemployment still climbing and the economy still mired in a recession. There’s talk of green shoots, but most everyone agrees that an earnest recovery is a long way off.

No one knows for sure what is more likely to occur: prolonged deflation or hyperinflation; or when the economy might change course. So how can we prepare for either scenario?

If you think hyperinflation is likely, you could invest in:

shorter-term fixed-income investments

TIPS (Treasury Inflation-Protected Securities)

foreign stocks and currency

real estate, REITS (real estate investment trusts)

commodities

precious metals

gold

During hyperinflation, the last place one wants to be is in cash.

If you think deflation is likely, you could:

raise and hoard your cash.

live below your means.

put off big purchases until prices drop more. You are, in essence, actively making money just by not losing it.

rent a home rather than own because home prices, like other hard assets, will continue to drop in value during deflationary times.

de-leverage yourself: pay off your credit debt as soon as possible — and don’t start building it up again. You don’t want your debt to expand at the same time dollars are becoming more valuable!

invest in dividend paying stocks. But it can be tricky to find a secure dividend paying stock in a deflationary environment.

play the currency market (certainly not my area of expertise).

play the short side using things like inverse index funds that move in the opposite direction of the market. Caution: While there are possibilities for making huge returns in this market, the rallies in a bear market can whomp you. Your timing must be precise.

build a CD ladder. The longer the duration the more risk there is, but at least your principal is protected.

invest in yourself and your education. Staying employed in such a downturn is the most important thing.

During deflation, debt is the enemy.

What am I doing? What do I plan to do?

Over the course of the past few years, I have positioned myself as best I can for the current economic deflation: I sold my home, paid off all of our debt, pulled out of equities and hoarded cash. Today I am in a wait-and-see holding pattern and once deflation is curbed, I am in a great position to change course accordingly: I have cash ready to buy the hard assets (when they are cheap) that will help me weather inflation.

What about you? Do you think prolonged deflation or looming hyperinflation is more likely? Why?

My question has to do with the timing of buying (a home), especially in the current market. I would like to know from your perspective when a time to buy might be. I’m not asking for you to predict a date, but rather I’m interested to know what indicators and trends you might look at to make a decision to buy a home. Any response you have is much appreciated!” ~Adam

(Ed Note: The following is a reprint of an analysis I wrote in April, 2008. My family and I have since moved into a different rental home so the numbers I used to illustrate these concepts would be different today. However, the concepts remain the same. I’ve also added an update after the conclusion of this post.)

Using three indicators and the home my family currently rents as an example, I’ll illustrate how I gauge whether (or when) the time might be “right” to buy a home.

The home I rent today might sell for $250,000. We pay $1,295 per month for rent. It is a single-family home located in Colorado with four bedrooms, three baths, a two car attached garage, a fenced yard and 2,120 square feet.

First “Price is Right” Indicator: The Price-to-Rent Ratio

Rents are a useful barometer for tracking housing markets. Like a P/E (price-to-earning) ratio for a stock, a P/R (price-to-rent) ratio can help identify relative real estate bargains. The lower the ratio the better. The current price-to-rent (P/R) ratio for my home is 16.09 ($250,000 price divided by $15,540 annual rent).

Therefore, the current P/R ratio on my home is 38.7% higher today than it was in 2000 (16.09 versus 11.6). If the P/R ratio for my home was to return to year 2000 “pre-bubble” levels, my home would sell for $153,250 today rather than $250,000. Therefore, unless I find a “bargain” – a foreclosure, short-sale or bank-owned property with a reasonable P/R ratio, I’ll probably wait until my local market returns to pre-bubble price-to-rent levels.

Second “Price is Right” Indicator: When will buying real estate make sense for landlords?

I recall times when local investors could buy a house with 20% down, rent it out at market rates, and make a positive cash flow in year one. In fact, I’ve done it before. But during the real estate bubble, investors speculated. They bought homes that created a negative cash flow, then counted on home appreciation to pay them back someday in the future. As with any investment, the more speculative, the more risky. I’d rather wait until I can buy rental investment homes that create positive cash flow from the get go. Future price appreciation would be icing on the cake.

My (speculative?) landlord bought our home in 2006, near the peak of the housing bubble. Here’s an estimate of the annual costs our landlord incurs on our home:

Obviously our landlord was betting on home price appreciation to continue at unprecedented rates. Bummer.

In order to break-even in year one, our landlord needs to increase our rent from $1,295 to $2,065 per month. Of course if he tried to do this, we’d move out, no one would move in, and his investment property would sit vacant. Not good! So he’s not likely to raise the rent.

Alternatively, if he had bought at the “right” price with the intent to create a near break-even cash flow in year one, he’d have paid only $130,000.

$130,000 is 48% less than the current value of $250,000! Ouch!

If our landlord had bought this home for $130,000, this is what the math might look like:

Item

Annual Cost

Notes

Down Payment

$1,040

20% of $130,000 = $26k down x4% in T-bill, CD or bond instead.

Mortgage Payment (P+I)

$7,680

$104k @ 6.25% 30 yr fixed

Property Taxes

$780

0.6% of hm value

Insurance

$900

Maintenance, Repairs

$2,331

15% gross annual rent (minimum)

Property Management Fees

$1,399

9% of gross annual rent (8-10% is typical)

Vacancies

$1,295

1 month per year allowance

Marketing and Leasing Fee (by Mngmt Co.)

$583

90% of 1 mo. rent every 2 yrs (80-100% is typical)

Auto Expense

$0

(assuming owner relies 100% on mngmt company)

Total Annual Cost

$16,008

+ $15,540 Annual Gross Rent Collected

– $16,008 Annual Costs

= $468 Annual LOSS (almost break-even)

Third “Price is Right” Indicator: An “old” rule of thumb for establishing fair value of rental property is to multiply the annual gross rent by 6 (in not-so-great neighborhoods) to 10 (in premium neighborhoods). This gives you a “business” estimate of the value of a rental. In my case:

Using the above indicators, the price of the home I’m renting should be between $130,000 and $155,400 — rather than the current $250,000. Significant price declines are needed to bring home prices back to their historical relationship to rents (and/or rents need to increase substantially) before the P/R ratio makes sense again.

June 2009 Update:

A year ago, we moved to a 3 bedroom, 2 bath condo. We pay $1150 per month in rent and this includes our water, sewer, trash, cable TV, yard maintenance, clubhouse, swimming pool, hot tub and exercise facility. These HOA benefits cost our landlord about $200 per month. Our landlord bought our condo for $177,100 in 2002. Therefore, our P/R (price to rent) ratio is just under 13 if you include the HOA benefits in our rent; or about 15.5 without them. The most recent comparable sales price I can find for a similar unit was $160,000 in March 2007. I don’t know what our condo would sell for today, but the price would need to drop to $132,240 for the P/R ratio to match our local 11.6 pre-bubble average.

We will continue to rent for as long as it is cheaper to do so. We enjoy our modern condo with all of it’s amenities and proximity to a huge park. This said, we ARE looking to buy land or a home eventually — but only if we can find one for the right price! We are in an enviable position — we can make a low price offer sound appealing to the right seller — because we don’t require a mortgage, we can pay cash if necessary, and we don’t have any home sale contingency to delay closing. When the time and price is right, we will find (or build) our little green dream home.

Readers: What indicator(s) are you watching to access real estate values? When do you think the market will hit bottom? Please do your own math for your own local market and leave your results in the comments for comparison and discussion.